ALAN D. AVILES
HHC PRESIDENT AND CHIEF EXECUTIVE
REPORT TO THE BOARD OF DIRECTORS
July 29, 2010

HHC has been named a Circle of Life Award honoree by the American Hospital Association for its innovative palliative care program that provides comprehensive, sensitive and dignified care of patients near the end of life or with life-threatening conditions. This national recognition reaffirms our leadership role not just among public hospitals, but among all healthcare organizations that provide palliative care to patients. The growth in our program confirms that patients and families want support in making informed decisions in their own best interests as they approach the end of life, and those who are suffering from the debilitating symptoms of a serious or terminal chronic illness want treatment focused on enabling them to make the most of every day.

HHC, one of eight organizations to receive a Circle of Life Award, was chosen by a selection committee that focused on innovative programs that respect patient goals and preferences, provide comprehensive care, acknowledge and address the family or caregivers' concerns and needs, and build systems and mechanisms of support to continue the program for future patients and caregivers.

A second national recognition went to Queens Hospital Center, recognized for its leadership and innovation in quality, safety and commitment to patient care by a Citation of Merit, one of three national awards granted this year by the American Hospital Association-McKesson Quest for Quality program. The award honors organizations that are committed to improving safety, patient-centeredness, effectiveness, efficiency, timeliness and equity as the basis of a comprehensive quality-oriented healthcare system and have made progress toward making this vision a reality that other hospitals can emulate.

The Citation of Merit to Queens Hospital Center recognizes its exceptionally effective approach to reducing disparities in care through its strong community ties and accountability to the community it serves. Efforts cited have included the opening of the state-of-the-art Queens Cancer Center in 2002 to improve community accessibility to prevention and early treatment, and a Center of Excellence in Diabetes, opened to address the high incidence of diabetes in the community.

On July 12, 2010, over 250 staff participated in a Senior Leadership Symposium on TeamSTEPPS at Harlem Hospital Center. The Forum was designed to spread leading TeamSTEPPS practices across HHC and to recognize our TeamSTEPPS Master Trainers and Champions.

Colonel Peter G. Napolitano, MD, MC, USA Medical Corps, United States Army provided a riveting keynote address entitled Front-line Perspective on Advancing the Culture of Safety: Bedside to Battlefield that described TeamSTEPPS implementation strategies and outcomes at Department of Defense facilities in the U.S. and in Iraq and Afghanistan. Dr. Napolitano is a nationally renowned speaker and TeamSTEPPS Master Trainer for the Department of Defense.

As early adopters of TeamSTEPPS, Woodhull and Kings County Hospitals were selected to present their facility's implementation and success story. Maurice Wright, MD, Chief of Emergency Medicine and Marlene Dacken, RN, MSN, CNAA, Patient Safety Officer, described The Impact of TeamSTEPPS Methodologies on Patient Care in the Emergency Department: Utilizing Strategies of Communication and Team Work to Improve Patient Care at Woodhull Hospital. Yolanda Lezama-Clark, MS, RN, Patient Safety Associate, described Our TeamSTEPPS Journey, an overview of the work accomplished by Kings County Hospital over the last year. In addition, 11 TeamSTEPPS posters showcasing both HHC and facility implementation stories were displayed.

As I mentioned to you in May, we recently began a conversation with the New York State Department of Health and the Office of Professional Medical Conduct regarding the development of a “Just Culture” at HHC. The Just Culture philosophy requires a culture change from one which focuses on the “bad apple” or “blame and shame” approach, to one which emphasizes a learning environment where each member of the organization is held responsible and accountable for making safe behavioral choices that keep their patients and colleagues safe from harm.

This month we continued that dialogue with the Dr. John Morley, Medical Director of the NYSDOH and Mr. Keith Servis, Director of OPMC. Both agencies continue to seek input from HHC on ways that the Department may strike a balance between the principle role as regulator, and the healthcare industry's goal of improving patient safety by embedding a Just Culture. Achieving such a balance is very complicated and nuanced and we applaud the Department for engaging with us in this conversation.

Representatives of the Queens Network, Metropolitan Hospital and Lincoln Medical and Mental Health Center joined members of my Central Office team to describe some of our implementation strategies and some of the continuing challenges we face as an organization, particularly at the local level, as we strive to transform our patient safety culture. We, once again, had a very open, honest and thoughtful discussion. This conversation will continue in the near future when both Dr. Morley and Mr. Servis will meet with our Council of Medical Directors and Presidents of the Medical Staffs to gain their insights on this important topic.

New York City was well-prepared for the recent heat wave, with cooling centers opening throughout the city and park, beach and pool hours extended to keep New Yorkers cool, despite record high temperatures. Emergency departments in our hospitals saw a few more patients suffering from heat-related symptoms, such as heat stroke and heat exhaustion, but only one patient required hospitalization for heat-related symptoms. Air conditioning functioned well in all facilities and in general there were no reported power outages, however HHC facilities check the fuel levels of their backup generators regularly, to ensure they are prepared to meet possible emergencies. Excessive heat can cause increased emergency visits due to other health conditions, such as asthma, however the overall number of emergency visits, was not significantly different than the number experienced last year in July.

As you know, HHC secures physician services through a number of affiliate contracts with either medical schools or large physician group professional corporations. We also have a number of academic affiliation contracts under which physicians working in our facilities have faculty appointments for the purposes of instructing and supervising medical residents who train in our facilities. The administration of this number of contractual relationships complicates our efforts to function as an efficient, integrated delivery system. Moreover, as healthcare service delivery and payment reform unfolds, there is an increasing need to accelerate more effective care coordination and care management capabilities across the entire HHC system.

As a result of these evolving challenges, we are taking action on three fronts related to affiliation relationships. First, we are working to develop a model affiliation contract with standard terms and conditions - aligned with our long-term strategic goals for strengthening HHC as an integrated healthcare delivery system -- that would apply to all affiliates. Second, we are reviewing whether there should be a consolidation of some affiliation relationships to a smaller number of affiliates. Third, we are reviewing our academic relationships to determine how to best align our safety net care delivery mission with our continuing role as a large teaching environment for the next generation of physicians.

Because of these uncertainties, this year we have not entered into the usual multi-year renewals of any of our expired affiliation contracts. In each case, we have either continued the contracts on a month-to-month basis on the same terms and conditions or we have extended the expired contracts for only a one-year period.

Two of the contracts which expired this year and are now continuing on a month-to-month basis are the contract between Coney Island Hospital and its professional corporation affiliate, UGMA, and the contract between Harlem Hospital and Columbia Medical School. With regard to UGMA, a decision has been made to terminate that affiliation relationship and to consolidate those affiliate responsibilities to an existing professional corporation affiliate of another HHC hospital, effective September 1, 2010.

With regard to Harlem Hospital, we have entered into discussions about the possible changes to this long-standing affiliation relationship. However, it is our expectation that an affiliation relationship with Columbia Medical School will continue and that a newly negotiated affiliation contract will strengthen the role of this exemplary academic institution in the training of medical residents and in ensuring that Harlem Hospital and Renaissance Healthcare Network patients have access to cutting-edge clinical research and trials. No final decisions have been made as to the terms of the new affiliation contract and discussions are ongoing.

By now you are probably aware that the closing of North General Hospital in the Harlem community has affected HHC in various ways. Emergency visits that would have been handled at North General have been rerouted to several neighborhood hospitals, chief among them being HHC's Harlem Hospital, which has experienced a six percent increase in emergency visits. To a lesser extent, Metropolitan Hospital has also experienced a small but noticeable increase in emergency visits, which may be in part attributable to the closing of North General.

HHC has also developed a plan regarding development of the North General property. HHC had previously planned major modernization of the Coler-Goldwater Long-Term Care Facility to consolidate all programs, now on two campuses, to a single location on the Coler campus, and upgrade essential systems on that 60-year old campus to meet code requirements. The estimated cost of this modernization plan was $487 million. Now, after discussions with North General, DASNY, the NYS Health Department, and the City of New York, HHC has developed an alternate plan. Approximately 280 long-term acute hospital beds will be relocated from the Goldwater campus to the main hospital building of the former North General Hospital by early 2012. A Skilled Nursing Facility will be built on the parking lot parcel of North General, and 270 to 300 skilled nursing facility beds from Goldwater will be relocated there by late summer 2014. After necessary construction to complete code requirements and replace essential systems on the Coler campus, the total estimated cost will be significantly less -- $266 million. I will continue to keep you informed as this plan develops.

The Corporation's medical malpractice profile for the fiscal year, which has just concluded, shows clearly that the intensive claims management techniques and in-house control of our litigation, endorsed by the Board, have resulted in record low indemnity payments of $130 million and a record dismissal or discontinuance of 87 lawsuits. The high-water mark for indemnity was $196 million. Another success is that total new claims this year were 10 per cent below the previous year. This is a testament to our patient safety and risk management programs. Our program of court-assisted mediation for trial-ready cases is now part of a federally-supported pilot program that will be conducted at five private hospitals in the City.

As part of HHC's 4-year cost containment plan, we have planned to contract with outside vendors for several key services. An RFP for the leasing and operation of the Brooklyn Laundry to a third party laundry processor is currently being advertised and that contract is scheduled to begin in early spring 2011. Annual savings are anticipated to be $6.1 million. Another RFP is expected to be released in September for management contract services of the HHC workforce in Environmental Services and Plant Maintenance. Savings in this area will come primarily from standardizing materials, supplies and work processes, as well as in utilizing new technology. Expected savings for this service will be approximately $15 million per year.

HHC has also set in motion the notice requirements for the approximately 200 persons -- primarily physicians, as well as some technical and administrative staff -- who will come off the payrolls of our affiliates effective December 31, 2010, thus reducing HHC's payment to the affiliates by about $44 million annually. There has also been a decrease of more than 50 funded lines in HHC Central Office staff, including targeted layoffs that were implemented at the end of last month. Additionally, within the next several weeks about 350 “trades” personnel - plumbers, carpenters, maintenance workers, laborers, electricians, etc. - will be laid off in line with the markedly reduced capital budget and related construction projects projected for the next several years. These layoffs are expected to save at least $32 million in salary expenses annually. The layoff of employees remains one of the most painful changes required by the cost containment plan. However, these difficult actions are necessary if we are to remain faithful to our mission, preserve our gains in quality and safety, protect our core patient care programs, and prevent the need for more drastic reductions or elimination of services.

The HHC Connectx program reached a milestone this month, when the number of private physicians who joined our computerized information exchange system passed the 2,500 mark. Community-based physicians who join the HHC Connectx program and are linked electronically to HHC, have a convenient, efficient way to make a referral to a needed service in one of our hospitals. The automated system replaces the use of cumbersome paper documents and accurately tracks every patient who is directed to HHC specialty services like radiology, gastroenterology, orthopedics, dermatology, and ear, nose, throat specialties. Private healthcare providers have made more than 168,000 referrals since the system was launched in May 2008. HHC invested $2.5 million to build the computer application and train community physicians and their staff in its use.

Private physicians who join HHC Connectx receive training and support at no cost to their practice. The physicians also have direct access to test results and consultation reports needed to direct patient care. Patients referred through the service can be directed to a specialty and diagnostic service appointment without the need to be re-evaluated by a hospital-based physician.

Community physicians treat many of the 1.3 million patients we serve. Yet a large number of these local physician practices are not aware of the extensive specialty services we have for all New Yorkers, or how easily they can refer their patients to those services. With HHC Connectx, we strengthen our partnership with community physicians, give them access to many of the benefits of our large organization, and at the same time build a more integrated healthcare delivery system for New Yorkers.

In June, the Corporatewide Breakthrough Team hosted our second annual Breakthrough conference. Over one and a half days, 275 participants learned about Breakthrough accomplishments, challenges and plans for the coming year.

The conference featured two excellent plenary speakers, Mark Graban of the Lean Enterprise Institute and author of the Shingo Prize winning book, "Lean Hospitals", and Dr. Zeev Neuwirth, Chief of Clinical Effectiveness and Innovation at Harvard Vanguard Medical Associates, a large group practice in Boston, where he leads Lean transformation. Both speakers reaffirmed the path we are taking, emphasizing Breakthrough's potential, common challenges among organizations seeking to change, and the urgent, industry-wide need to transform healthcare delivery.

There was also recognition of HHC's progress so far, including break-out sessions on the first day, with presentations on OR, ED, inpatient flow and ambulatory care. Examples provided at the conference include:

• In the Elmhurst Emergency Department, the average time from arrival to triage was reduced from 60+ to 9 minutes and EMS turnaround time was reduced from 29 to 9 minutes on average.
• At Cumberland D&TC, average discharge processing time was reduced from 36 to 11 minutes.
• At Bellevue Hospital, a series of Breakthrough events to improve the efficiency of peri-operative services resulted in an additional 500+ Operating Room cases.
• At Coney Island Hospital, the amount of time from order to completion of a radiology test decreased an average of 63 percent, from 168 to 63 minutes.
• At Gouverneur D&TC, average monthly pharmaceutical costs decreased from $385,000 to $275,000.

Also in June, HHC co-sponsored a day-long executive seminar on the Lean Performance Improvement System in Public Hospitals at the annual meeting of the National Association of Public Hospitals and Health Systems. Teaming up with our sister hospital, Denver Health, this session provided an opportunity to share successes and lessons learned in response to the growing interest in Lean expressed by public hospitals across the country.

Passage of a six-month extension of the enhanced Federal Medicaid Assistance Percentage (FMAP) originally included in the American Recovery and Reinvestment Act (ARRA) remains elusive. On June 24th, the Senate once again once failed to muster the 60 votes necessary for cloture on a jobs bill including a skimmed down version of the FMAP provision. The original FMAP provision in ARRA gave states a 6.2 percent boost in the amount the federal government contributed to Medicaid. Earlier in the legislative year, both houses of Congress agreed to the enhanced FMAP extension. However, what had once seemed like a non-controversial “done deal,” which led 30 states, including New York, to include the FMAP funds in their budgets, has instead become captive to both election year politics and nervousness about the growing federal deficit. It is possible that a reduced FMAP extension may yet be resurrected after the November elections.

On June 29, 2010, the Senate Health, Education, Labor and Pensions (HELP) Committee held a hearing to examine the continuing healthcare needs of 9/11 affected communities. A patient at HHC's WTC Environmental Health Center and Dr. David Prezant, Co-Director of FDNY's WTC Medical Monitoring and Treatment Program were among those testifying in support of the James L. Zadroga 9/11 Health and Compensation Act (S. 1334). Sen. Kristen Gillibrand introduced the legislation, which is cosponsored by Sens. Schumer, Lautenberg and Menendez. Mayor Bloomberg submitted testimony stating that “This legislation achieves what WTC responders, area residents, and other survivors of the 9/11 terrorist attacks have long been seeking -- sustained funding to treat those who are sick, or could become sick because of 9/11; continued research on potential WTC health effects; and the re-opening of the Victim Compensation Fund so that those harmed as a result of 9/11 are fairly compensated without having to show that anyone but the terrorists were at fault.” A floor vote on HR 847, the House version of the bill, whose prime sponsors are Congressman Jerry Nadler and Congresswoman Carolyn Maloney, is expected tomorrow. Although the 9/11 legislation to establish a 10-year entitlement program is facing a difficult vote on the House floor this week, on a more positive note the Senate Appropriations subcommittee for health has more than doubled the appropriation for WTC health to $150 million for next year. It is these appropriations that have been supporting our WTC EHC program here at HHC. The appropriations process will not be final until the fall.

Turning to Albany, while most of the budget was completed in June, a revenue bill still needs to be approved by the State Senate. The Assembly passed the revenue bill last month. In an attempt to spur action, Governor Paterson called the Legislature back into special session yesterday, but no progress was made. The Governor has stated he will continue to call the Legislature into special session daily until a final agreement is reached and has raised the possibility of taking the Legislature to court to compel them to act.

In addition to passage of the revenue bill, the Governor would like to have the Legislature approve an FMAP contingency plan in the event that Congress does not extend the enhanced FMAP funding this year. The Governor's FMAP Contingency proposal would give authority to the State's Budget Director to reduce State program funding by slightly more than $1 billion. There are also a handful of other issues, including changes to SUNY and CUNY and a proposed property tax cap, that remain unresolved.

To recap the impact to HHC of the Health provisions of the budget that were passed in early June, HHC will see a reduction of approximately $45 million as a result of the:

• elimination of the trend factor for hospitals, nursing homes and home care agencies,
• 1.7 percent rate cut to MetroPlus, and
• penalty for readmissions within 15 days for certain patients.

The impact to HHC could grow, however, as additional cuts or taxes are considered to close any gaps that open up before the end of the fiscal year. The Governor had initially proposed a gross receipts tax on hospitals and home care providers along with an increased, unreimburseable assessment on nursing homes but this proposal was not included in any of the Governor's budget extender bills or in the Legislature's recent revenue proposal. If these taxes were to be included at a later date, it would increase the impact to HHC by more than $16 million.

There is good news though. Language that HHC was seeking to extend the current authorization for DSH funding was included in a separate Article VII budget language bill that was signed by the Governor earlier this month. In addition to extending authorization for additional DSH funding to HHC, it also allows for an increase in managed care funding, increases upper payment limit payments to HHC's Diagnostic and Treatment Centers and grants authority for HHC to work with the State to seek federal funding based on certified public expenditures for dually eligible patients. With matching funds from the City, these actions could bring in more than $500 million to HHC.

I would like to thank the members of the Assembly, Senate and their staff's along with all of our Community Advisory Board members, labor partners and healthcare advocates who worked closely with us this year on these issues. We are deeply appreciative of the support and budget advocacy efforts they conduct each year on our behalf.

While on the topic of Albany, I want to let the Board know that we have requested the Governor to veto legislation that would reduce the probationary period from 5 years to 1 year for HHC's non-competitive class employees. This union-sponsored bill, which only applies to HHC, passed both houses of the Legislature in the waning days of session last month. The Governor must sign or veto the bill by midnight tomorrow.

In the final City FY 2011 budget deal adopted at the end of June, the City Council agreed to the Mayor's recommendation that $349 million be appropriated to HHC to supplement our restructuring initiatives and afford HHC a measure of fiscal stability. Separately, the Council restored $8.2 million funding for several HHC programs including:

• $5 million for Child Health Clinics,
• $2 million for Expanded HIV Testing, and
• $1.2 million for three MRDD programs in Brooklyn, Manhattan and Queens

The Council also appropriated $669,600 to HHC for the Primary Care Initiative program to support the provision of primary care services at multiple sites.

Additionally, in the Capital budget, the Council appropriated $11.4 million and the Borough Presidents appropriated $3.6 million to HHC's facilities for various projects and equipment.

• The 40th Police Precinct honored Lincoln Hospital neurosurgeon Dr. Narayan Sundaresan at their Annual Fellowship breakfast with an award for “Humanitarian Service of the Year” following his successful treatment of gunshot victim Vada Vasquez last fall. The breakfast recognizes individuals instrumental in building strong relations among residents, law enforcement and public officials.
• A new digital mammography machine was installed at Sea View Hospital, with new services planned to expand screening access for Staten Island residents.
• Metropolitan Hospital sponsored the Fourth Annual Power of Aging Well Health Festival in late June, where more than 600 seniors attended and took advantage of the many health screenings offered. The Festival was planned in collaboration with several city agencies and included the participation of more than 50 community-based organizations.

This month, HHC is launching the third episode of Believing, our four-part multimedia series about our patient safety initiatives and achievements.

Episode Three, Reaching Out, includes several examples of the tools and techniques we use successfully so that our staff can communicate effectively with our diverse patient populations. It also features a section about the level of transparency that we as an organization have achieved. The Believing series is available on our website, and it uses narrative, film, photographs, and data to tell the story. The fourth and final episode will premiere at the September Board meeting.

• Dr. Edward Fishkin, Woodhull Hospital, Artist Access Program, WCBS - TV, 6/30/10
• Farmers' Market Opens at Bellevue Hospital, NY1 - TV, 07/26/10
• Dr. Olajide Williams, Harlem Hospital, Hip Hop Heals, NBC Nonstop New York - TV, 07/20/10
• Program provides art supplies to needy, Elmhurst Hospital, CNN- TV, 06/17/10
• Art in exchange for medical expenses at Woodhull Hospital, Radio Netherlands Worldwide, 07/23/10
• Kings County Hospital Center: Bringing Awareness to Street Violence, News 12 Brooklyn - TV, 06/22/10
• Kids Ride Club Teaches Children about Healthy Living, New York Daily News, 07/21/10
• Diabetes Center of Excellence, Queens Hospital Center, Headlining Diabetes, Spring 2010
• Mediating Malpractice, The Wall Street Journal, 07/23/10
• HHC Connectx Reduces Walk-in Visits, Crain's Health Pulse, 07/08/10
• NYC hospitals sign 2,500 docs in e-referral system, Government Health IT, 07/07/10
• Queens hospitals offer help for cancer patients, The Queens Courier, 06/23/10
• Jacobi cuts ribbon on new oncology services, The Bronx Times Reporter, 06/24/10
• NYC Health and Hospitals Corp. Recognized by American Hospital Association for Model Program, Hospital Newspaper, 07/21/10
• Ninth Annual Conference on Urban Health, Harlem News, 07/01/10
• Renaissance Auxiliary salutes Dr. Palmer at annual public meeting, New York Amsterdam News, 07/09/10
• Flushing woman delivers triplets at QHC in Jamaica, YourNabe, 07/01/10
• Children and Nature Initiative Aims to Reduce Youth Obesity, Disease, Nursing Spectrum, 07/26/10
• LAC: Two HIV Drugs Don't Boost Lipid, Glucose Levels, MedScape, 07/22/10
• A Staffwide Sense of Ownership, The American Hospital Association-McKesson Quest for Quality Prize 2010